Padenga sees glittering prospects in gold

Listed crocodile skins exporter Padenga has expressed optimism its multi-million dollar investment in gold mining group Dallagio and subsequent diversification will bear fruit on grounds the yellow metal is profitable.

Padenga chief financial officer Oliver Kamundimu yesterday told Business Times in emailed responses that mining will deal with the gaps created by the seasonal nature of the skins business and increase export earnings.

Kamundimu said directors have a robust strategy including setting aside US$20 million for the importation of critical mining equipment and maximise value in its soon to be concluded investment in gold mining group Dallagio which has interests in Eureka gold mines and Pickstone Peerless.

Pickstone Peerless Mine near Chegutu is an open pit operation currently producing between 61 and 65 kgs of gold per month while Eureka mine near Guruve is also an open pit mine currently under development and expected to produce 140kgs of gold per month. In terms of the transaction, Padenga will acquire 50,1 percent shareholding in Dallagio in exchange for an investment the equivalent of US$20 million into expanding the operations of Dallagio.

According to a circular recently released by Padenga, the company will acquire 9, 036 shares in Dallagio to be settled by way of cash injection of ZWL$90,36m and the equivalent of US$19 999 990 for the procurement and delivery of mining equipment in Dallagio. HM Barbour which controls 20 percent interest in Padenga has an effective 11 percent in Dallagio. Based on the valuation work performed, the equity valuation range for the entire share capital of Dallagio was deemed to be between US$50 million and US$55 million.

Despite the power shortages that are threatening mining to a point where gold deliveries slumped by about 38 percent between May and June, coupled with developments that will see the company paying for electricity in US dollars, Kamundimu said directors see great potential in the business.

“Yes we do see value and greater potential in gold mining. The power shortage problem has been addressed by the fact that Dallaglio will now pay for its electricity in US dollars. They will then be spared from load shedding…Budgets and cash-flow projections we have reviewed indicate that the business will still be profitable even after paying for power at US$0.12 / KWH,” Kamundimu said.

He said forex shortages will be partially addressed by the fact the US$20 million that Padenga is paying for its shareholding will be used exclusively to import mining equipment. “Thereafter, the crocodile business with its seasonal income and the gold business will complement each other in meeting the foreign currency denominated working capital needs for the group,” he said.

Kamundimu said Padenga decided to invest in Dallagio as it was looking for a business that harnesses the country’s natural resources to create an export product. “We were also looking for a business with top skills and has operated profitably and sees room for expansion (and) we see a great future in gold mining. The current gold price of $1,500 per ounce is forecast to remain at that high level for the next couple of years. This gives the business great returns.”